Future Airline Systems

1. The concept
The concept of an airline has remained almost unchanged since the dawn of air travel. A state or business buys and operates aircraft and charges passengers and freight to travel on them – it calls itself an airline. They operate from airports that will usually be owned by others and they pay fees for the use of these airports. In later years, this simple model has necessarily needed to be changed in detail. As airport congestion has increased, the notion of the airline owning take-off slots has become more dominant. The trend to out-sourcing catering supplies has led to the formation of great enterprises specialising in this work for many airlines.
In recent years the pressure on the major hub airports and the increasing amount of time that passengers are asked to spend there has raised again the originating idea of point-to-point journeys. The latest major change to the air travel industry has been the advent of the Low Cost Carriers (LCC) which has accounted for a large fraction of recent increases in travel.
Under present expectations air traffic is set to increase – by as much as 4-5 % per annum for passengers and up to 6 % per annum for freight. Over two or three decades this would equate to massive additional demands on every aspect of air travel. It is possible that some of the enshrined conventions of the airline industry will be under pressure and need new models of business if the challenges of the late 21st Century are to be met. Several ideas were put forward that bear upon this possibility.

2. The airline airport
This concept envisages that an airport could become sufficiently dominant in an area for it to embrace the role of flight services (the airline role) and operate as a “through service” provider from passenger arrival to destination.
This would allow the operator many new way of being flexible that could flow through to improvements in passenger value. Its hold over the slot regime at the airport, ownership of the retail outlets, ownership of car parking and transport interchanges combine to allow it to flex prices for each individual part to the consumer.
Passengers would also have a single accountable supplier, one able to answer for shortcomings on every aspect of the passenger experience. This would avoid the sensation of being passed from airport to airline to service provider to baggage handler in pursuit of satisfaction.
Whist this approach may bring substantial benefits to some passengers others might fare less well. If, for example, car-parking fees were used to subsidise airline costs those travelling short distances but parking for long periods would lose out. This is a common feature of any broad-spectrum business and it would be balanced just as in any other business optimising the overall result for the company. If the airline-airport became very large in one geographical region there might also be perceptions of reduced competition and the ability, and perhaps practice, of charging customers unreasonably high prices.
Other airlines wishing to fly from the “airline-airport” would wish to assure themselves that they would be able to do so economically and not be subject to predatory business practice from the main operator. Against this, it might be in the main operator’s interest to attract several other airlines flying non-competing routes if this would increase the benefit to the financial result. In such a case, the terms negotiated would need to be acceptable to both parties.

3. Airline business models
The previous concept opens the wider question of what business model will be applied to air travel.We are all familiar with the traditional concepts – the airline owns the resources and maintains them, the airline also pays the airport to use its real estate and the passengers pays the airline. This model has already been substantially changed by the LCC’s. Some already work on the basis that the airport pays the airline and makes its money from retail parks in the airport.Travel companies pay very little to the airlines for travel because they take a broader view of income in charging for holidays. Airlines often do not maintain their own aircraft but sub-contract maintenance to others. Engine suppliers often do not sell engines to airlines but instead sell them engine availability.
Therefore, the number of business models already increases rapidly.
This opens up the whole field of how aviation is to be financed and what the implications of different models will be. It is perfectly possible to imagine that companies could join together and offer “free” flights on the basis that there will be associated ways of relieving passengers of their money through retail purchases, holidays, hotels, car hire and much besides. The lure of nearly free flights is already with us with the LCC’s. Much of the rise in aviation traffic is due to their success. This is now attracting critical review and allegations that the climate warming effects of LCC’s are not adequately paid for by such low tickets. This has now extended to demands for fuel to be taxed as a way of securing flight ticket rises.
Some argue that fuel taxes are regressive. Others that a European fuel tax will actually increase global warming because it will encourage the airlines to save fuel taxes in the most obvious way, i.e. by buying fuel from outside the taxed zone (Europe assumed) and carry it further at higher cost and pollution. Other voices point out the need for massive new research to bring about technologies that will address these deep problems and point out that fuel taxes are unlikely to find their way to fund these programmes.
Emissions trading is the most direct way of influencing which business model will bring least damage to the global climate. However, to have the effects that are claimed the emissions trades would need to be between the individual (who is the consumer) and the provider of the services. Unless individual consumers “spend” their personal carbon allowances and make choices between, say, a car journey, a flight, or a patio heater they will have only marginal effect. More seriously still, the application of regional arrangements for personal carbon trading are unlikely to have beneficial effects whilst people outside their area are exempt from such constraints.
Within this uncertain, intractable, variable situation, the development of new business models for aviation will stumble to find the best route. Some experiments will succeed by chance and others fail.What is already clear is that the development of aviation business is intertwined with social interest in the consequences. Projecting avenues that may be possible for the former without considering the effects on the latter are unlikely to prove satisfactory.

4. Revisiting slot allocations
Since the original aircraft owners started selling tickets to passengers the concept of the airline’s ownership of the “slot” has been inherent to the relationship between airport and airline. For many years its significance was not highlighted and it simply formed a convenient means of regulating airport usage. As busy hub airports have become more congested the slot has become much more important. Many airlines want the same slots at peak times and the resource they fight over, access to the runway, is limited.Worse, major carriers have been granted “grandfather rights” that ensure their continued ownership of valuable slots either by themselves or through their alliance partnerships. The use, sale and management of slots has now become a major driver in airline economics.
Within the European Community DG Tren has been taking soundings on a new approach to slot management.
Their concept is for slots to be opened up to a secondary market allowing the airlines to buy and sell slots. The Commission’s view is that this market will go some way towards the desirable customer outcome of the most valuable slots belonging to the most efficient airlines. There is substantial support for the concept and it is agreed that it will move the system towards a freer market and to a re-settlement of slot allocation. However, problems will remain if this idea is brought to implementation. It is far from certain that inefficient airlines will be prompted to sell their most valuable slots and may instead opt to continue using them because of their network importance within both their own and their partnership route network. Re-adjustment of the market is not expected to be other than very slow and imperfect.
The discussion about slots has been confused by the history of major airlines many of which are national flag carriers and in a number of cases are state owned. This gives rise to perceptions of state pressure in support of the national airline, to anti-competitive stances and to a number of policies that inhibit free and open competition.
Another handicap to change is the Chicago Convention that prevents any airline from setting up to collect passengers anywhere other than in its state of registration without permission to do so. This also gives states powers to regulate airline structures and lays them open to pressure from their national airlines.
A more radical approach would be to return to the basic truth of the scarce resource – that it is a property of the airport and not the airline. Were we to take this view it might be possible progressively to return all slots to airport ownership and then to lease them to airlines. Such a major adjustment could not, of course, be introduced suddenly without chaotic implications for the industry. Nevertheless, within a programme it might be possible to give notice of intent that all slot ownership rights would be terminated some years hence to all operators.
Thereafter slots would be leased for operating periods of some years with lessees able to buy and sell residual lease periods.